Indian steel industry 'will die' if govt doesn't help: JSW

In an interview with CNBC-TV18’s Menaka Doshi, Sajjan Jindal, CMD of JSW Steel said that the minimum import price of steel should be raised to USD 420 per tonne from the current USD 300 in order to protect the domestic industry from Chinese imports.

The fall in steel prices, in the face of relentless imports from China, has battered the domestic steel industry, which “would die” if the Indian government doesn’t step in to help, says Sajjan Jindal, CMD of JSW Steel.

Speaking to CNBC-TV18’s Menaka Doshi, from the sidelines of the World Economic Forum in Davos, Jindal said the government should up the minimum import duty on steel from the current USD 300 per tonne to USD 420 per tonne.

He further added that given the state of the steel industry there are no plans of new acquisitions. In other plans, JSW may venture in the renewable energy sector, he said.

Below is the verbatim transcript of Sajjan Jindal's interview with Menaka Doshi on CNBC-TV18.

Q: Can India be isolated with what is going on in the world?

A: I agree with you. India cannot be isolated. India is part of global village and whatever happens in the world, it has its bearings on India. But given that India is suffering because given that the commodity prices are all time low or they are headed further low, so India is suffering, but the fact that India needs to grow, India will be growing in the coming years. India is a great opportunity, great potential and it is a great time for India to sit up and build the infrastructure, take advantage of low cost regime in the world and push forward the agenda of growth.

Q: Steel has been the toughest business so far. We spoke to TV Narendran of Tata Steel and he has indicated that he saw prices stabilise a bit at least the decline in prices seems to have stem and he said that it did look like domestic demand was picking up, they did about 10 percent more growth in December. I want to know whether you concur with that view, do you have a different view, are things looking like they are stabilising or do you believe that there is a lot more to go in terms of the fall in prices?

A: We have to go a bit back. China was growing very rapidly and since 2000 they were building 100 million tonnes of new steel capacity every year and that created huge overcapacity in China and with China slowing down like last year they degrew 3.5 percent in steel consumption, so their export picked up in a big time which killed the whole steel industry globally. However, now China has made so many losses in their steel industry that they have realised that they cannot sustain like this forever. So they have started to think about it and now they are reworking their plans and the prices have started moving up a bit. I guess over the last 15 days about 7-8 percent prices have gone up, which is not bad, but steel these prices are very low and unless we in India do something about stemming this imports from China, Japan, Korea, the steel industry in India will die and that will have a huge long-term impact on Indian steel industry.

Q: The government did put in place the safeguard duty. Unfortunately prices fell so rapidly at the time the duty was proven to be ineffective. What more do you need the government to do right now to allow for the Indian steel industry to remain competitive?

A: We are telling the government to work out our cost of production, Indian steel industry's cost of production, which is very simple; it can be done by few technical people sitting together and give us that kind of pricing protection.

Q: What is that averagely work out to?

A: About USD 400-420 per tonne.

Q: We are quite far away from that right now?

A: Yes, today the import is about USD 300 per tonne, so we are quite far, about 30 percent away.

Q: So that means not 20 percent safeguard duty is entirely ineffective. You need a substantially higher duty?

A: That's correct and the problem with safeguard duty is that there is lot of circumvention that is happening. So safeguard duty can be put on a particular product and therefore, the market, the consumers would then circumvent it by adding some boron and call it an alloy steel or API steel and then they will circumvent it and then it is a long process to go back to the government to get that included. Therefore, we are telling the government that while you do the safeguard, 20 percent safeguard is good enough but on that product, but people circumvent it, so therefore they nullify the whole purpose of this safeguard duty. Therefore, we are saying that put minimum import prices.

Q: And that minimum price needs to work out to about USD 400?

A: USD 400 to USD 450 depending on the product.

Q: Do you have an answer from the government on when this may or may not happen?

A: There is a lot of positive traction in the government. I had a talk with Finance Minister here in Davos as well and he said, "It should happen. We are sympathetic towards the steel industry, we want this industry to grow because this is one of the basic industries in the country". Therefore, it is a matter of time.

Q: Maybe between now and the Budget?

A: Keeping fingers crossed, it should be earlier. Budget is still far away.

Q: You said that you were keen on continuing with your countercyclical investments in steel. Now there are several distressed plants up for sell, which ones are you buying, what is on your list?

A: Given this situation in the steel industry, at the moment, we are also feeling little uncomfortable in acquiring any more assets or raising a debt level in our balance sheet. So in fact internally we had decided to first consolidate our balance sheet, deleverage ourselves over the next couple of years and then look for any more acquisition.

Q: So no acquisitions right now at least for the next year or two till things stabilise in steel?

A: Yes.

Q: What about power acquisitions? Last year in Davos almost on this very same spot, you told me that you were looking to enhance capacity from 4,500 megawatt to 10,000 megawatt. So now for that additional amount you are going to acquire about 4,000 megawatts, you have been on an acquisition spree of sorts but not all your deals are closed. So where are you in this process?

A: To close a deal it takes time. So since last year we have closed the 1,300 megawatt of hydro which we took over. It got consummated six months ago, in September 2015 we closed it. Now we are working on two more projects of another 1,500 megawatt that is Monnet Power and Bina.

Q: All these things we know about what is the next thing you are going to buy?

A: Next thing is if you see in Davos now everybody is talking about renewable power and going in this wind and solar and maybe some newer technologies. So now we are also working on that, how to go for some new technology, power. So that made me thinking that we should look at coal based power plant anymore or should we look at new technology and go for renewables? So I think that is the way we would be going in the future.

Q: Have you in your head worked out some sort of plan on how you will approach the renewable sector on your own in joint venture?

A: It is a very new thought. We are already discussing internally how we should go and over the next few months, we will be working our strategy out that how we should build our capacity in renewables.

Q: Any idea of how much of your total power capacity you would like to be in renewable power?

A: Idea was that we should have about 50 percent in thermal, 25 percent in hydro and 25 percent in renewable. That would be broadly the next.

Q: Are you looking at organic or setting up renewable power plants or renewable energy plants?

A: Mostly we would be setting it up because the newer technologies are now going in for more and more, higher and higher plant load factors (PLFs). Therefore, I think we will be going in for new investments.

Q: I was told that you were looking to invest about Rs 4,000 crore to double both your port and cement capacity, so port to 62 million tonne, cement 17 million tonne, are you in the market to buy, are you in the market to build?

A: No, the port capacity we are doing our Brownfield expansion organic Brownfield and Greenfield and cement to 17 million tonne is organic.

Q: But you are looking for cement acquisitions?

A: We are open to that. If you want to grow faster, there is a lot of capacity out there in India waiting for to be consolidated.

Q: Who you are talking to?

A: We are looking at various opportunities, we are not yet in any final stage.

Q: Has Lafarge come to you?

A: Lafarge is also one of the targets that we are looking at. These are all in the market place. So we are looking at those but nothing yet has been concluded. There is no finality yet.

Q: So how much are you looking to acquire in terms of cement capacity?

A: We haven’t put any number to that but we are looking at doing about 30 million tonne over some few years.

Q: So you are going to acquire an equal amount of capacity in cement?

A: Yes.

Q: We hear that Lafarge might be willing to look at selling all of its business in India, are you talking to them for that deal?

A: We are looking at Lafarge also but there are many others.

Q: But the entire Lafarge business?

A: Yes.

Q: Who are the many others that you are talking to, which regions of India are you looking at these acquisitions for?

A: In the Eastern part of India, in the southern part of India, western part of India. So we are looking all across. We don’t have yet any clear target. So Lafarge is one, which is very interesting but still we don’t know whether we will be able to close that.